As of January 1, 2026, important amendments to Ontario’s Construction Act, which for the most part apply retroactively, took effect. It is imperative that those involved with construction projects in Ontario are aware of these recent amendments and the impact on their legal rights, remedies and obligations.
As part of a two-part series, we will be reviewing the most important of the January 2026 amendments to the Construction Act. In part one of the series, we will be addressing: 1) changes to the prompt payment provisions; 2) the new mandatory annual release of holdback; and 3) amendments relating to notices of termination.
Prompt Payment
On October 1, 2019, significant amendments to Ontario’s Construction Act took effect, which included the introduction of a new mandatory prompt payment process for addressing payment obligations for those in the construction industry. At that time, the requirements for “proper invoices”, which, along with any additional requirements specified in the contract, had to be met in order to trigger the prompt payment timelines, were introduced. Meeting such requirements is crucial because once a proper invoice is received, strict deadlines that require the owner to pay the invoiced amount within 28 days or issue a notice of non-payment within 14 days are triggered.
As of January 1, 2026, several of the requirements for proper invoices were amended to introduce the possibility of milestone payments, clarifications regarding the necessary information to identify the applicable contract or other authorization for the work, and additional details regarding the delivery of payment. A new requirement for “any other information that is necessary for the proper functioning of the owner’s accounts payable system that the owner reasonably requests” was also added.
Prior to January 1, 2026, if an invoice failed to contain each required element, it was not considered to be a proper invoice and the prompt payment timelines were not triggered. This allowed owners to stay silent regarding any inadequacies in the form of the invoice, and delay payment to the contractor based on such technical deficiencies.
One of the recent amendments to the Construction Act introduced a new provision that fundamentally alters the consequences of a deficient invoice. Under the new provision, an invoice that does not meet the requirements of a proper invoice will nevertheless be deemed to be a proper invoice unless the owner notifies the contractor in writing within seven days of receipt, specifying the alleged deficiency and what is required to address it. This amendment imposes a new procedural obligation on owners and shifts the burden of identifying invoice deficiencies. It also ensures that technical invoice deficiencies are identified and addressed early in the payment cycle, rather than being used as grounds to avoid or delay payment obligations.
Mandatory Annual Holdback Release
Prior to January 1, 2026, annual or phased holdback releases were strictly optional. They were only triggered if the contract explicitly allowed it, the project timeline exceeded one year, and the contract value was $10 million or more.
As of January 1, 2026, the ten percent statutory holdback must now be released annually for all contracts, subject to the applicable transition provisions set out in the Construction Act. Furthermore, the provision that previously allowed owners to refuse to pay a portion of or the entire holdback amount upon publishing a notice of non-payment of holdback has been repealed and is no longer an option. Similarly, contractors and subcontractors are no longer able to rely on an owner’s notice of non-payment of holdback to refuse the payment of holdback to their respective payees, as these sections of the Construction Act have also been repealed.
The date that the prime contract was entered into is of crucial importance, since the anniversary of this date will trigger the owner’s notice and payment obligations and determine the deadlines for such steps each year. The amendments to the Construction Act now require an owner to:
- not later than 14 days after the contract anniversary date, publish a notice of annual release of holdback specifying the amount of holdback that the owner intends to pay;
- at least 60 days but not later than 74 days after the date on which the notice of annual release of holdback is published, pay the contractor all of the holdback accrued over the preceding year, unless a lien has been preserved or perfected in respect of the contract.
Within 14 days after receiving payment of the holdback from the owner, the contractor is required to pay each subcontractor their accrued holdback from the preceding year, unless a lien has been preserved or perfected in respect of the subcontract. Subcontractors have corresponding holdback payment obligations to sub-subcontractors.
Since the obligation to release holdback annually applies retroactively to contracts entered into prior to January 1, 2026, new provisions that guide the process for such contracts were also introduced. For these contracts, the second anniversary of the day the contract was entered into that follows January 1, 2026 is considered to be the first anniversary date for the annual release of holdback. By way of example, if a contract was entered into on July 31, 2025, the first applicable anniversary date will be July 31, 2027. The first holdback payment due thereafter will be made up of all holdback accrued as of the first applicable anniversary date.
With respect to the balance of the holdback remaining upon project completion or a contract completed prior to the first anniversary date for the annual release of holdback, the pre-January 1, 2026, rules regarding the payment of holdback following publication of a certificate of substantial performance continue to apply.
Notice of Termination
As of January 1, 2026, the Construction Act now requires that no later than seven days after a contract is terminated, either the owner or the contractor or other person whose lien is subject to expiry shall publish a notice of the termination in the prescribed form.
The date on which the notice of termination is published is considered to be the contract termination date for the purposes of the Construction Act, including, determining the commencement of the applicable lien period.
It is important to note that publishing a notice of termination does not prevent a party from disputing the validity of a termination.
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The Construction Act is a powerful piece of legislation that grants significant rights and remedies to those in the construction industry. It is also complex and technical, and it imposes important obligations on certain parties. Those impacted by the Construction Act must be familiar with the recent amendments to not jeopardize their rights, remedies, and obligations, especially since a failure to make use of available rights and remedies or comply with statutory obligations can have costly consequences.
If you would like more information or assistance regarding any of the matters discussed in this Construction Alert, please contact our firm.
